States to play key role in reform

Health proposals delegate choices Result may 'depend heavily on where you live'

A growing debate over whether to let states opt out of any government-run health insurance plan overlooks a key facet of the health-care measures being assembled in Congress: When Washington is done, the shape of any new health-care system is likely to be finalized in Lansing and Boise and Baton Rouge.

Along with the opt-out proposal offered last week by Senate leaders, lawmakers on Capitol Hill are drafting health-care legislation that would delegate to state officials a multitude of momentous decisions, from what benefits are offered to low-income families to what hurdles to put in front of private insurance companies before they can raise premiums.

"The fact is that state programs are going to look different," said Judith Solomon, a senior fellow at the Center on Budget and Policy Priorities in Washington. "Where some people might be expecting national health reform, we're facing the real possibility that what you get is going to depend heavily on where you live."

The prospect of state control over the new health system holds both promise and peril, said Jonathan Gruber, an economist at the Massachusetts Institute of Technology who has advised Democrats on health reform. "The plus side is that states are uniquely positioned to reflect the tastes of their residents and market conditions. Plus, we can really learn from the different approaches states take," Gruber said. The downside "is that states can screw up and not meet the federal desires we have for minimum standards."

The health-care package unveiled by House leaders Thursday comes closer to national reform, health policy experts said. It would create a national marketplace where those who lack insurance could shop for policies, including a plan designed and administered by federal health officials. States would play a supporting role, helping to design the largest expansion of Medicaid in 40 years and to develop high-risk insurance pools for people in immediate need of coverage.

The package under development in the Senate is a different story. A bill approved by the Finance Committee would leave virtually every major decision to state officials.

Rather than create a central marketplace for insurance, that measure would permit each state to establish its own "exchange" and decide which insurers would have access to that market. States could let low-income families shop the exchanges or offer them some other kind of coverage, such as policies already offered to state employees. Under a provision authored by Sen. Ron Wyden (D-Ore.), states could even bypass the whole exchange mechanism and try to expand coverage in other ways.

The Finance Committee bill did not include a government insurance option; Senate Majority Leader Harry M. Reid (D-Nev.) said last week he would add one before bringing a package to the Senate floor. But to appease Democratic moderates wary of a big new government program, the availability of the public option, too, would be subject to state discretion.

Reid's opt-out plan is opposed by Sen. Olympia J. Snowe (Maine), the only Republican to support the Democrat-led health reform effort. Snowe is still pushing for a "trigger" provision, which would create a public plan only in states where private insurers failed to offer policies that are broadly affordable.

Given that the Senate presents the larger political hurdle to passing legislation, political analysts expect its state-choice approach to prevail. That means a White House signing ceremony for a health-reform bill could become a prelude to 50 state legislative battles over how to expand Medicaid, how to set up the exchanges and how to enforce new insurance regulations, as well as whether to give state residents access to a public plan.

"Everybody forgets that you pass the legislation and that's really just the first part. There are years of rulemaking and negotiations and lobbying over the regulations and the implementation," said Joan Henneberry, health policy adviser to Colorado Gov. Bill Ritter (D).

Henneberry and her colleagues across the nation are following congressional negotiations closely, scanning the shifting ground for clues about the role of the states, particularly regarding Medicaid, the state-run health program for the poor that would be expanded to cover as many 15 million additional people. Most, but not all, of the extra money would come from Washington, and states are likely to face myriad other post-reform costs, particularly if they have to hire administrators to run the exchanges.

At a time when states are facing a collective budget shortfall of $350 billion over the next three years, Henneberry said, everybody is worried about "how much additional matching revenue we're going to have to come up with."

Health policy experts are concerned not only about the ability of the states to shoulder their share of the cost of reform but also about their administrative and analytical capacity.

Some states are well-positioned to manage a new federal program that seeks to cover the uninsured while pressuring doctors and hospitals to deliver care more efficiently. Minnesota, for example, has long offered residents quality health care at relatively low prices, thanks to nonprofit insurance plans, long-standing group health insurance and managed-care programs, which originated in the state in the 1960s. The MinnesotaCare program is akin to a public option and sells insurance to more than 125,000 people on a sliding scale based on income.

A variety of boards and provider networks is already focused on some of the most fundamental questions, including how to improve quality and safety while lowering costs, said Alan Weil, executive director of the National Academy for State Health Policy, a Washington-based nonprofit that works with state health officials.

Last week, Minnesota Gov. Tim Pawlenty (R), who is testing the waters for a 2012 presidential run, called a federal public option with an opt-out clause "a bad idea." Pawlenty stopped short of predicting what his own decision would be, but health experts said it is unlikely to matter for Minnesota residents, given the state's other advantages.

At the other end of the spectrum are states with poor collaboration in the health sector, lax insurance regulations and small, disorganized Medicaid programs, Weil said. Because such states also tend to have large populations of uninsured people, they could find the post-reform transition particularly harrowing.

Take Texas, where nearly one in three working adults lacks health insurance, the highest percentage in the nation. Not only do many Texas employers not offer coverage but the state legislature doesn't do much to pick up the slack. Texas Medicaid covers about 2 million children, but only 125,000 of their parents, because of a stingy eligibility cap set in 1985 and never adjusted for inflation, according to Anne Dunkelberg, associate director of the Texas-based Center for Public Policy Priorities. For example, a mother with two children can obtain Medicaid for herself only if she earns less than $188 a month, or just over $2,200 a year.

Expanding Medicaid eligibility to all adults who earn just a bit more than the federal poverty level, as Congress is proposing, could easily add a million people to Texas Medicaid, Dunkelberg said. But the program has huge administrative problems and takes more than three months to sign up some applicants, she said; without federal standards, "these Medicaid expansions could turn out to be an empty promise."

Like most other Republicans, Texas Gov. Rick Perry opposes government-run health insurance, and his staff said he would want to see the "fine print" of Reid's opt-out plan. "The bottom line," said Perry spokeswoman Katherine Cesinger, "is a massive takeover of health care is not the solution."

Slevin reported from Chicago. Staff writers Kari Lydersen in Chicago, Robin Shulman in New York and Ashley Surdin in Los Angeles contributed to this report.